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More LCB Questions Surface As 2009 Absolut Move Questioned

OCEAN CITY — The
comptroller’s investigation into the Liquor Control Board for Worcester
County’s (LCB) Stoli promotion has sparked a renewed interest in another
controversial liquor promotion that saw the LCB on the other side of the
allegations last year.

For several weeks in
July of 2009, no licensee in Worcester County was able to purchase Absolut
vodka after LCB Executive Director Brian Sturgeon “de-listed” the brand after a
sales campaign was conducted by wholesaler Republic National Distribution
Company (RNDC) that Sturgeon claimed was an unlawful selling scheme.

After learning about the
deal, which was offered by the supplier of Absolut via the RNDC in Worcester
County that would have reportedly given a credit of $125 per case with a
minimum purchase of three cases, Sturgeon reportedly called in a complaint that
led to a comptroller’s investigation and prompted Sturgeon to send out notices
to all licensees that, “no purchase orders (for Absolut) would be considered by
the warehouse or the stores of the LCB until the matter was resolved.”

Reportedly, that letter
was received by licensees the week prior to July 4, 2009 weekend, and the ban
of Absolut in the county went until July 21, 2009 when the ban was lifted as
the investigation would be handled by the comptroller’s office, as referenced
in another letter or notice from Sturgeon to the licensees.

Although there was never
any charges filed in the case, either side has up to three years to file a
class action lawsuit, and according to insiders, the case has not “gone away.”

Local licensees who took
the promotion say that although they got the liquor they never received the
discount, which they believe to be the reason that the investigation seemingly
went cold.

“No one that I’ve talked
to got any money back on that promotion,” said Buxy’s Salty Dog owner Doug
Buxbaum.

The question that
continues to arise from those in the industry, including the licensees, is how
the LCB could sell liquor for $5 and stand to make any money.

Sources say that last
year, Sturgeon tried to work out a direct deal with the supplier of Absolut,
who denied him, and when Sturgeon was told of the promotion that Absolut was
doing with the RNDC, he put the stop on the sale of Absolut in the county.

However, state law says
that the LCB has no regulatory powers over a wholesaler, so the county’s ban on
the sale of Absolut was technically out of line, and is believed to be the
reason the ban on Absolut was lifted after several weeks, and could have
possibly led to a civil action taken against the LCB for interfering with
business as a monopoly.

“During that whole time
they banned Absolut though, whenever someone wanted to buy Absolut, he offered
them Stoli, which is what they get direct,” said FP Winner Division Manager Rob
Kenney. “That’s the middle of July and Absolut lost a lot of money during that
time down here.”

Last week, LCB Board
member Larry Wilkinson provided The Dispatch with faxed invoices from
their supplier William Grant and Sons for the March Stoli promotion that has
come under fire for allegedly offering three different costs to three different
licensees on the same day.

Attached to those
official invoices was a summary sheet citing how the group got the net cost for
each bottle of alcohol below $5, since Maryland commercial law states no
product can be sold below cost.

According to the
Beverage Journal, and other wholesalers and suppliers across the state, the
wholesale price for a bottle of Stoli ranges from $15-$22.

In that summary, the LCB
claimed that it received more than $52,000 in depletion allowance/promotional
credits that equated to more than $12 a bottle for the 4,236 bottles purchased

(the industry average ranges from $1 to $1.50 per bottle). They claimed that the depletion allowance

when subtracted off the total bill drove their cost per bottle from $17.17 to
$4.73.

However, William Grant
and Sons representatives refuted their claim by saying that the depletion
allowance given to the LCB was “less than $10,000”, or a $42,000 difference.

This week, Wilkinson
said the numbers were not tampered with to show that the company came in below
cost, but rather, that the LCB took its monthly depletion allowances from
William Grant and Sons over a series of months and added them together and thus
applied them to the March Stoli promotion to give licensees the best deal
possible.

“Licensees complain to
us that our prices are too high, and now they are complaining that they didn’t
pay enough,” said Wilkinson. “We aren’t in the mud-slinging business, so all I
will say is that our numbers concerning the depletion allowances are the total
of several months all applied to one promotion.”

Gus Montes d’Oca, chief
of operations at the Montgomery County Liquor Control Board, said this week
that in his 20-plus years in the liquor business, he’s never heard of adding
together depletion allowances for one promotion.

“We live and die by the
depletion allowances in the business, and I’ve never heard of one that equates
to $12 a bottle,” said Montes d’Oca. “Nor have I ever heard of anyone adding up

a bunch of months of depletion allowances together. That just isn’t a common practice in this industry.”

It’s no secret that the
Worcester County LCB is purchasing more “direct” product than ever before, as
LCB went on record saying it’s purchasing more than 50 percent of its total
volume directly from suppliers, rather than the usual method of purchasing it
from wholesalers.

Yet, those in the
industry are having a hard time believing LCB Chair Don Hastings’ claim that
the monopoly makes less profits on products that it buys direct.

“I think Worcester is
trying to buy everything direct like we do,” said Montes d’Oca, whose county is
a juggernaut in state beer, wine, and liquor sales, grossing more than $220
million and contributing back more than $28 million to Montgomery County, “and
if they are buying direct it’s definitely more profitable on those products.”

Industry insiders say,
and Montes d’Oca confirmed, when companies buy direct from suppliers there are
sometimes a set volume or quota that the wholesalers agree to move of a certain
product.

The law says that a
supplier can switch distributors or wholesalers at any time with 30 days
notice, so the competition between wholesalers and dispensaries, like the LCB,
is huge.

Some believe that the
reasoning behind the LCB’s $5-a-bottle promotion was in order to move more
volume so that it could meet the agreement it had with supplier William Grant.

Wilkinson denied any of
these theories this week, contesting that the promotion was done strictly to
help the licensees.

Still, Montes d’Oca
wonders how a promotion like that could be anything but a losing cause.

“I can’t imagine how
anyone has the pockets to do something like selling a bottle of Stoli for $5.
There’s no way to make money on that unless they are just trying to move out
all the product,” he said.